VT Gas pulls the plug on pipeline expansion to NY

VT Gas pulls the plug on pipeline expansion to NY

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Vermont Gas President and CEO Don Rendall is still waiting for a dull moment.

Nearly two weeks before he officially took over as CEO from his predecessor Don Gilbert on Jan. 1, Rendall announced a second cost increase for Phase 1 of Vermont Gas' natural gas pipeline expansion from Colchester to Middlebury. The price went from $121.6 million to $154 million. The original cost estimate was $86 million.

Then, on Tuesday afternoon, Rendall dropped another bomb. Vermont Gas is pulling out of Phase 2 of the expansion project from Middlebury to the International Paper plant in Ticonderoga, N.Y.

International Paper had agreed to pay the entire cost of Phase 2, as well as part of the cost of Phase 1. But when the price for Phase 2 went from $99 million to $135 million, Vermont Gas said, the multinational paper company elected to withdraw from the deal.

"We've been working with them both formally and informally over the past several weeks," Rendall said in an interview with the Burlington Free Press Tuesday. "We were unable to find a path forward that was mutually beneficial."

Donna Wadsworth, mill communications manager at International Paper in Ticonderoga, said the original cost estimate for Phase 2 and International Paper's share of Phase 1 costs was $69 million in October 2012.

"Then in May of last year they came back to us and said due to construction costs rising and assorted other increases the estimate was $99 million," Wadsworth said. "A couple of weeks ago the gave us verbally a cost increase to $135 million and the schedule became an uncertainty. For us it was strictly a business decision."

 

Wadsworth said International Paper sent a notice of termination for Phase 2 to Vermont Gas on Tuesday morning, as allowed in the contract between the two companies.

International Paper will continue to experiment with its fuel mix options, Wadsworth said, but Number 6 fuel oil will remain the dominant source of energy into the foreseeable future. One of the benefits of the Phase 2 expansion, Don Rendall said, was to convert the paper plant from fuel oil to much cleaner burning natural gas.

Rendall: Phase 1 still viable

Rendall said that while Phase 2 no longer made commercial sense, Phase 1 to Middlebury, now before the Public Service Board for a new review, continues to be viable, even as a stand-alone project. The original vision for the pipeline expansion included not only the spur to International Paper, but also a pipeline to Rutland.

Vermont Gas has presented its case for Phase 1 to the state and stands ready to respond to opponents of the project who want to see it dropped as well, Rendall said.

"The outcome we have advanced and that we are confident is the right outcome is that we proceed with Phase 1 as originally permitted," he said. "The permitted costs are higher but the benefits are still strong. I'm confident the right outcome is to proceed with Phase 1 as a stand-alone project, not dependent on getting to Rutland or on Phase 2."

Gov. Peter Shumlin quickly supported Rendall's assessment on Tuesday afternoon, issuing a news release less than half an hour after the Vermont Gas announcement.

"I am gratified Vermont Gas will be putting a renewed focus on offering strong public benefits and a choice for Vermonters of natural gas service through its ongoing expansion to Middlebury and continued exploration of how to drive farther south to Rutland," Shumlin said in a statement. "I know that the Public Service Board and Department will provide vigorous oversight. The state's interest and mine has always been in getting the choice of affordable natural gas to more Vermont residents and businesses, to help expand economic opportunity."

Critics want scrutiny

Meanwhile, advocates in Just Power, Rising Tide Vermont and 350Vermont renewed their calls to cancel all phases of Vermont Gas' "fracked gas pipeline."

"The coalition is calling on the Vermont Public Service Board to revoke the Certificate of Public Good for Phase 1 in light of the near doubling of Phase 1 costs, the stark climate impacts of fracked gas, and impacts on landowners in the path of the pipeline," the groups said in a statement.

Fracked gas refers to the process of hydraulic fracturing, in which drillers inject fluids into gas-bearing rock formations to crack and loosen them, releasing the gas they contain.

Keith Brunner, a spokesman for Rising Tide Vermont, said Tuesday building more "fossil fuel infrastructure" is "not the way forward."

"The economics are beginning to show that, as well as the popular pressure of people organizing and protesting," Brunner said.

AARP Vermont took a more moderate stance, urging the Public Service Board in a statement to give "very close scrutiny" to the financial viability of Phase 1 and the burden it imposes on existing ratepayers.

"With the cost of this pipeline project rising steadily, however, it is imperative that the Vermont Department of Public Service step up to provide the needed data and analysis to inform the decision on Phase 1," the AARP statement said. "It is our opinion that to date consumers have not been well represented by regulators and we feel strongly that Vermonters deserve better."

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The Williston pipe storage yard is seen after Don Rendall, Vermont Gas System’s chief executive officer, announced at a news conference in South Burlington on Dec. 19 that the cost estimate for Phase 1 of the company’s pipeline project has risen to $154 million. (Photo: GLENN RUSSELL/FREE PRESS)

Construction to continue

Chris Recchia, commissioner of the Public Service Department, which represents ratepayers' interests before the Public Service Board, said Vermont Gas made the right decision pulling the plug on Phase 2. He said he looked forward to refocusing on Phase 1, which was remanded back to the Public Service Board for reconsideration by the Vermont Supreme Court this week.

Recchia said his department will scrutinize Phase 1 with a new understanding of current conditions in the pipeline construction industry.

"The first time this came through I don't think we were as appreciative of the effect of industry standards on the cost, primarily construction costs," Recchia said. "Because of fracked gas around the country the demand for pipeline services is huge. Maybe that will change as a result of oil prices coming down and projects being put on hold."

Rendall said Vermont Gas will continue to do some construction on Phase 1 under its still-active Certificate of Public Good, mostly working on measurement and regulation stations — the equivalent of substations in an electrical power grid.

"I don't want to presuppose what the regulators may do, or what others may ask regulators to do, but we're confident that the right thing to do is complete Phase 1," Rendall said, adding that his hair "couldn't be any grayer, if it could it would be."

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